Last month, the Supreme Court of Florida issued an opinion in Trinidad v. Florida Peninsula Ins. Co., — So.3d —, 2013 WL 3333823 (Fla. July 3, 2013), addressing a Florida statute that required the insurer of a replacement cost policy to pay for the “replacement cost, without reservation or holdback of depreciation in value, whether or not the insured replaces or repairs the dwelling or property.” Fla. Stat. § 627.7011(3) (2008). Although this statute was amended effective May 17, 2011, to eliminate the requirement that payment be made irrespective of whether repairs have been undertaken, this opinion will apply to all cases arising under the previous version of the statute and may impact the interpretation of policy language in future cases.
In the underlying breach of contract suit, the insured’s home was damaged by fire on February 11, 2008. The insurer admitted coverage and made partial payment of the repair cost, but because the insured had not undertaken any repairs or replacement, the insurer withheld payment of general contractor overhead or profit. The trial court granted summary judgment in favor of the insurer, which was affirmed by the intermediate appellate court. The Supreme Court of Florida reversed and held that, under the plain and unambiguous language of both the statute and the at-issue policy, the insurer could not withhold general contractor overhead and fees if they were reasonably necessary.
The insurer argued that the statute’s silence regarding overhead and profit allowed the insurer to withhold these general contractor fees when the insured had not undertaken repairs. The court disagreed and held that the statute requires payment of replacement costs for the covered loss, meaning what it would have cost the insured to rebuild – including general contractor profit and overhead if a general contractor would reasonably be necessary. Cf. Goff v. State Farm Florida Ins. Co., 999 So.2d 684 (Fla. 2d DCA 2008) (overhead and profit included in scope of an actual cash value policy where insured is reasonably likely to need a general contractor).
The court also rejected the insurer’s argument that a provision in the policy permitted the insurer to withhold profit and overhead. The provision limited the insurer’s liability to the least of: (1) the policy’s limit of liability applicable to the building; (2) the replacement cost of that part of the building damages for like construction and use on the same premises; or (3) the necessary amount actually spent to repair or replace the damaged building. Section (3) of the provision did not allow the insurer to withhold profit and overhead because the insurer had admitted making partial payment under section (2), and because the insured had not actually expended any money on repairs. As under the statute, section (2) of this provision required payment of profit and overhead if it was reasonably likely that the insured would need a general contractor.